RESPONSIBILITYOF AUDITORS UNDER

COMPANIES ACT 2013

SRINIVAS METHUKU

Topics of Discussion

• Brief about Companies Act 2013• Provisions Relating to Auditors• Duties & Powers of Auditors- Section 143• Some Humour• Conclusion

• Companies Act 2013 has bought a lot of revolutionary changes relating to appointment, disqualification, many other new terms of auditor.• Penalties are something which got a special status and makes a auditor go bankrupt.• The 3’S behind CA 2013 to come into enforcement• Satyam Computers• Saradha Scam• Sahara Scam

Brief About Companies Act 2013

PROVISIONS RELATING TO AUDITORS

Companies Act, 2013

Section Description

Section 139

Appointment of Auditors

Section 140

Removal, Resignation of auditor and giving of special notice.

Section 141

Eligibility, qualifications and disqualifications of auditors.

Section 142

Remuneration of auditors.

Section 143

Powers and duties of auditors and auditing standards.

Section 144

Auditor not to render certain services.

Section 145

Auditors to sign audit reports, etc.

Section 146

Auditors to attend general meeting.

Section 147

Punishment for contravention.

Section 148

Central Government to specify audit of items of cost in respect of certain companies. (Cost Audit)

Provisions Governing Auditors

Sec 139- App of Auditor

Rotation of Auditors

Cooling Period

Removal & Resignation

Qualifications & Dis-Qualifications

Remuneration

Auditing refersto a systematic examination of books of accounts, documents and vouchers

to ascertain how far the financial statements present a true and fair view of the concern.

compliance i.e. ensuring that the books of accounts are properly maintained by the entity as required by law.

Audit Overview

• Independent accounting / auditing firms hired by companies subject to an audit as per Companies Act 2013.• External auditors express their own opinions on whether the financial statements of the company in question are free of material misstatements• Experts who possess knowledge in the field Auditing, Assurance & taxation who fall within the definition of Chartered accountants act, 1949.

Who is an Auditor

Powers & Duties of Auditor- Section 143

• Auditor has to right to inspect Books of accounts, Vouchers at all times relating to company irrespective of the location.• Seek Information from the officers & explanation in relevant matters which he feels so.

Section 143(1)-Duty to Inquire

Areas of Special Focus

1. Loans & Advances2. Verify any Fictitious Entries3. Sale of Investments not less

than Book Value.4. Loans & Advances Shown as

Deposits

5. Personal Expenses charged to revenue

6. Issue of shares for Consideration or in Kind

• Opinion of the Research Committee of ICAI on section 143(1) is that auditor r is not required to report on the matters specified unless he has any special comments to make on any of the items referred to therein.• If he is satisfied as a result of the inquiries, there is no duty to report.

Reporting Requirement

The auditor should report to the company • on the accounts examined by him

and • in respect of the financial statement

that are required to be laid before the company in general meeting. • Report whether the company has

complied with the accounting standards, auditing standards which depict true & fair view of status of affairs of the company through its financial statements.

Section 143(2)-Duty to Report

The auditor should report to the company on following Matters:-

1. Reporting the impact on financial statement relating to the information/explanations not provided by the management.2.Evidence to believe proper books of accounts maintained in Branch as per the branch auditor’s report.3.Tallying of Profit & Loss Account, Balance Sheet to the Books of accounts maintained by the company.

Section 143(3)-Contents of Auditors Report

5. Observations and comments of the auditor on the financial transactions or matters which have adverse effect on the company

6. Report whether any director is dis-qualified from being appointed as the director under section 164(2).

7. Whether Adequate Internal Finance Controls have placed & operating effectiveness of such controls.

8. Disclosing the impact of any pending litigation, if any in the financial statement.

9. Delay in transferring the amount to the Investor Education and Protection Fund (IEPF) by the company.

Continued…..

• Any areas which the auditor feels that has an inadequacy or negative information, he should disclose the same in his report stating the reasons of such reservation & negative report.

Section 143(4)- Qualified Report by Auditor

Section 143(5)- Government Company Auditor• Govt Company auditors shall be appointed by CAG who may direct the auditor the manner in which the auditor may be conducted.• Report the impact on financial statements in account of directions followed by the auditors as the per CAG.

• On Receipt of Audit Report from the auditor-• CAG may comment upon the audit

report (or) conduct a supplementary audit by authorizing persons on their behalf within 60 days of receipt of Audit report, if it so feels.• However the report of such

supplementary audit has to shared to all persons to whomsoever the audited financials have been shared.• Such copy should also been placed

in the AGM.

Section 143(6)- CAG Supplementary Audit

• In case of Government Companies, CAG shall appoint the auditor within 6 months from commencement of FY who holds office till Conclusion of AGM.• In case of such appointed auditors. CAG may conduct the test audit. • Such test report will attract provisions of Section 19A of CAG Act, 1971.

Section 143(7)- CAG Test Audit

Company has Branch in India 1. Audited shall be performed

by Company Auditor2. Any other qualified Person

u/s 139 of act.

Section 143(8)- Branch Audit

Company has Branch outside India

1. Audited shall be performed an Accountant.

2. Any other person qualified who is qualified to perform such audit Such branch auditor should

prepare a report on the books of accounts of the branch audited by him & send a copy of such audit report to the company auditor.

Section 143(9)- Compliance of AS• Compliance of Standards on

Auditing (SA) has been made Mandatory.

• Any deviation should be explained with reasons as to why auditor opted should be made clear.

• Reference to Guidance notes & other materials released by ICAI from time to time and seek help from the fellow members of ICAI on certain aspects where he is unable to form a opinion.

Section 143(10)- National Financial Reporting Authority• Central Government may prescribe the

SA recommended by ICAI in consultation with & after examination of the recommendations made by the NFRA.

• NFRA is regulatory authority for auditing, accounting and financial reporting, to advice on matters related to Auditing Standards in addition to Accounting Standards and also to act as a regulatory body for accountancy profession

• Until such standards are notified, the standards which are issued by the ICAI Shall be deemed to be the auditing standards for the purpose of audit.

• The Central Government may in consultation with the NFRA direct that the audit report in case of specific class of companies shall include a statement on such matters as may be specified therein.

Section 143(11)- Reporting in Auditor’s Report

Section 143(12)-Reporting on Fraud

• Auditor has reason to believe• that an offence involving fraud is

being or has been committed • against the company by an officer or

the employee of the company • Reporting the matter immediately to

the central government if such fraud amounts to Rs. 1 Crore or above.

• The auditor should first intimate the board of directors or the audit committee immediately within 2 days of knowing about the fraud seeking their reply/ observations within 45 days.

Section 143(12)-Reporting on Fraud

• On receipt on such reply or observations of the board or the audit committee,• Forwards the report along with the reply or observations of the board or the audit committee and• Auditor’s comments on such reply or observations to the central government within 15 days.

• In case, no reply received,• Send the audit report along with a note containing the details of his report that was earlier forwarded to the board or the committee for which he has failed to receive any comments or observations.

Continued….

• However, auditor will not considered as guilty of professional misconduct if he does his duty In good faith.

• However, the duty of confidentiality will not be effected in case auditor reports such matters to central govt in good faith as per second schedule of the Chartered Accountants Act, 1949.

Section 143(13)- Reporting in Good Faith

The provisions of Section 143 shall be equally applicable to-

• Company Secretary in practice conducting secretarial audit u/ 204

(or) • Cost Accountant performing

cost audit u/s 148.

• Section 148 governing Cost Audit mentions about the same.

Section 143(14)- Applicability to CS & CMA

Any Non-Compliance with any provisions of the Section 143-

• Chartered accountant, company secretary or the cost auditor• Shall be punishable with a fine which shall not be less than Rs. 1 lakh but which can be extend to Rs. 25 lakhs.

Section 143(15)- Penalties for Non-Compliance